Okta, Inc. — Q1 Fiscal 2024 Form 10-Q
Reporting period: Three months ended April 30, 2023; comparisons are with the three months ended April 30, 2022 unless otherwise noted. Amounts are in U.S. dollars.
Business context
Okta provides cloud-based workforce and customer identity services on a subscription SaaS model. Subscription revenue represented 97% of quarterly revenue. At April 30, 2023, the company reported more than 18,050 customers and over 7,000 integrations.
Key financial results
| Metric | Q1 FY2024 | Q1 FY2023 | Change |
|---|---|---|---|
| Total revenue | $518 million | $415 million | +25% |
| Subscription revenue | $503 million | $398 million | +26% |
| Gross profit / gross margin | $376 million / 73% | $284 million / 68% | Margin +5 percentage points |
| Operating loss | $(160) million | $(240) million | Loss narrowed |
| Net loss | $(119) million | $(243) million | Loss narrowed |
| Net loss per share, diluted | $(0.74) | $(1.56) | Improved |
| Cash from operating activities | $129 million | $19 million | +$110 million |
Subscription gross margin improved to 76% from 72%; professional services gross margin was negative 38%, versus negative 19%. Operating expenses were $536 million, including $7 million of restructuring and other charges. Stock-based compensation was $166 million.
Liquidity, debt, and cash flows
At April 30, 2023, cash and cash equivalents were $125 million and short-term investments were $2.245 billion, totaling $2.370 billion. Current assets were $2.843 billion and current liabilities were $1.362 billion. Deferred revenue was $1.187 billion, including $1.173 billion current.
Operating cash flow was $129 million. Investing activities provided $59 million, while financing activities used $326 million, principally reflecting $332 million paid to repurchase convertible notes. Cash, cash equivalents, and restricted cash declined by $137 million during the quarter to $134 million.
Okta repurchased $366 million principal amount of its 2025 Notes for $332 million, recognizing a $31 million gain on extinguishment. At quarter-end, $694 million principal of 2025 Notes and $1.150 billion principal of 2026 Notes remained outstanding. Management said available cash, investments, and expected operating cash flows should meet projected needs for the foreseeable future.
Changes and operating indicators
- Customer count increased 14% year over year, to 18,050 from 15,800; customers with ACV above $100,000 rose to 4,080 from 3,305.
- Dollar-based net retention declined to 117% from 123%.
- Remaining performance obligations rose to $2.942 billion from $2.710 billion; current RPO was $1.701 billion, expected to be recognized over the next 12 months.
- Subscription gross margin improved amid better spending efficiency. Professional services revenue fell 16% to $15 million, which management attributed primarily to lower bookings.
Outlook, risks, and unusual items
- The filing provides no quantified quarterly or full-year revenue or earnings guidance. Management expects operating losses to continue for the foreseeable future; it also expects subscription gross margin to improve over the long term, while noting near-term fluctuation and ongoing investment.
- Management reported longer and less predictable sales cycles, with potential delays affecting cash flow, RPO growth, and future revenue growth. It cited macroeconomic uncertainty, customer budget constraints, competition, and the possibility of slower growth.
- The quarter included $7 million of restructuring and other charges, primarily associated with lease impairments. The filing says further charges may arise from the real estate optimization plan. A prior workforce-reduction plan affecting approximately 300 employees was substantially complete.
- Cybersecurity and privacy remain significant risks. Shareholder litigation concerning cybersecurity disclosures and Auth0 integration continued: some claims were dismissed, while claims relating to Auth0 integration remain; the company says it cannot estimate potential losses.
- Other notable risks include intense competition, service outages or security incidents, privacy regulation, and obligations under convertible notes. Management reported disclosure controls were effective at a reasonable assurance level and no material change in internal control over financial reporting.
Investor verification priorities
- Check whether the decline in net retention to 117% and reported longer sales cycles persist, and how they affect subscription growth and RPO.
- Assess the quality and sustainability of operating cash flow, including the effects of customer collections, deferred revenue, and working-capital movements.
- Review the remaining convertible-note balances, potential cash settlement obligations, and the impact of further note repurchases.
- Monitor recurring restructuring and lease-impairment costs, profitability progress, and the substantial stock-based compensation expense.
- Track developments in the shareholder lawsuits and any cybersecurity, privacy, or service incidents that could affect customer trust or create material costs.